Case for rate cut depends on jobs figures

A SOFTER job market and a surprise drop in housing loans have pointed to a softening economy but do not strengthen the case for a Reserve Bank rate cut in February, analysts say.

A SOFTER job market and a surprise drop in housing loans have pointed to a softening economy but do not strengthen the case for a Reserve Bank rate cut in February, analysts say.

But economists said if unemployment data, to be released on Thursday, was weaker than expected, pressure would increase on the RBA to act.

"This all fits the picture of softer conditions in Australia in the fourth quarter of last year. The key question is, do we see an improvement in the first quarter of this year?" HSBC chief economist Paul Bloxham said.

Further job market weakness became apparent on Monday when steel maker BlueScope outlined plans to cut nearly a quarter of the 750 jobs at its Western Port Bay plant in Hastings, east of Melbourne.

BlueScope had already cut about 1500 positions in recent years after making two consecutive annual losses of $1 billion, blaming the high Australian dollar and a weak steel market for the results.

The Hastings plant, the biggest employer on the Mornington Peninsula, had already cut 200 jobs in mid-2011 as part of an earlier restructure. Macquarie analyst Liam Farlow said weak market conditions in Australian residential construction had forced the cost-cutting measure.

Economic data released by ANZ on Monday showed job ads dropped by 3.8 per cent in November, falling for the 10th-straight month.

Housing loans fell by a surprise 0.5 per cent in the same month, a Bureau of Statistics report showed.

The lack of a pick-up by non-mining sectors as mining investment shrank this year could see a rise of the unemployment rate this year, some economists said.

"The most interesting numbers in the next couple of weeks is actually going to be on Thursday, which is the labour market. We think unemployment might be on its way up, so we'll see," National Australia Bank chief economist Alan Oster said.

Economists estimate that the unemployment rate will rise to 5.4 per cent from its current level of 5.2 per cent.

Justin Fabo, ANZ's head of Australian economics, said he expected the unemployment rate to rise to about 5.75 per cent from the current level of 5.2 per cent by mid to late 2013.

On Friday, NAB tipped the unemployment rate to rise to about 5.75 per cent by late this year. The bank also slashed its interest rate forecasts for 2013 to 2.25 per cent by the September quarter.

But analysts said there were signs the global economy was picking up, which meant the RBA was more likely to keep rates steady in February as it waited for recent cuts to take effect.

The RBA would also be likely to take into account other domestic economic data, such as corporate capital expenditure plans for 2014, before the March meeting.

"If that comes in quite weak again or doesn't show much of an improvement, we think the RBA will say that's one sector of the economy we are looking to improve a reasonable amount," Mr Fabo said.

The average credit card balance fell by a record 2.3 per cent over the year to November, while inflation rose by 2.4 per cent over the past year, around the mid-point of the RBA's target band. Economists said the data showed that a lack of consumer confidence, job uncertainty and a desire to pay down debt remained the predominant themes for Australians.

"The 'balance sheet repair' mentality that pervades Australian households remains quite strong, despite lower mortgage rates," CBA senior economist Michael Workman said. "The national household savings rate is still near 10 per cent, the highest since the early 1980s."

Households' desire to shun debt, even at financial crisis lows, could also mean that any further interest rate cuts were less likely to impact on borrowing levels, CommSec chief economist Craig James said.

"Consumers are living within their means and prefer to use their own money to make purchases than put it on credit," he said.

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